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China's been showing signs of improving economic activity. Not blockbuster, but far from a hard landing. The country's political transition is now mostly behind us. China equities are trading at a discount to emerging market peers. This could be time for a bounce.

China’s Customs Administration released trade data on Friday and on Saturday the National Bureau of Statistics will release February inflation data, plus average January-February domestic activity data that remove Chinese New Year holiday distortions. And while today's trade growth was a big surprise, caution is warranted in interpreting the 24% yearly gain in exports as Europe remains a problem for Made in China goods. In other words, February is unlikely to repeat any time soon.

Barclays Capital said that their economics team revised its forecast for U.S. GDP growth lower by 0.5% through Q2-Q4 2013. China exports to the U.S. have actually remained strong throughout the last 12 months.

"We like China. It's an overweight for us. But Europe concerns us," said Audrey Kaplan, a portfolio manager at Federated Investors' InterContinental fund (RIMAX). She and her team at Federated in New York are forecasting 18% to 20% earnings growth in China over the next 12 months. "There's been a continuous overhang in China because of the government transition and how the National People's Congress would play out in terms of what they would lay out as their chief economic polices going forward. That's behind us and so I think there's a lot of potential upside for China equities now."

China's trade surplus came in at a stronger-than-expected $15.3 billion in February, which pushed the January-February total to $44 billion.

In tomorrow’s data releases, Barclays analysts led by Jian Chang in Hong Kong said they expect industrial production growth to rise to 10.6%, from

10.3%, with risks now to the upside given the strong export growth. They're also expecting to see fixed asset investment growth to 21%, boosted by strong social-sector financing and credit expansion. Retail sales growth should fall a bit, but come in at 14.5%. Overall inflation should rise to 2.8% from 2% currently due to Chinese New Year distortions. Chang expects inflation to be more subdued in March.

Moreover, the recently convened National People's Congress implies conservative economics are in play.

This might disappoint some investors who had expected some major investment initiatives to boost growth after the change of leadership late last year. However, it is in line with the government's own words of less spending and no big stimulus. The NPC's outcome is supportive of the view that growth in China will stabilize rather than balloon up or down. They've held fast to their 7.5% GDP target for the year, far below HSBC's target of 8.6% and consensus targets of 8.2%.

"It remains to be seen how the new leaders and new government -- to be approved next week by the NPC -- will act in office, but we think they will be content with around 8% growth," said Chang.

China investors should continue to expect growth stabilization rather than acceleration in 2013. During the fourth quarter of 2012, growth rose after several quarters of deceleration. The main driver was infrastructure spending by the government, especially in the railway sector, and a stabilizing property market. But in 2013, continued weakness in southern Europe will weigh on China even as trade increases with countries in the ASEAN bloc and with Brazil. Consumption has seen a secular improvement, but it is more of a stabilizing force rather than a shot in the arm. Any strong growth

recovery scenario has to be built on continuous expansion in government-led infrastructure spending, which is not a high priority if one follows closely what Premier Wen Jiabao said at the NPC.

Nevertheless, the iShares FTSE China (FXI) exchange traded fund is approaching $40 again after declining 1.8% over the last month. The ETF is down 3.25% this year, back to underperforming the MSCI Emerging Markets index.

Winners & Losers

A random walk through 10 of China's most actively traded shares listed on the NYSE and in Hong Kong. YTD performance.